This is the fourth and final part of this interview. You can read the first three parts at the following links:
From your blog I know that you do not prefer Index Funds even though they are highly recommended as decent options for average long term investors. Do you think that an average investor is better off picking an actively managed fund over index funds, despite the risks associated with fund manager and his team’s ability?
A. To clarify my stand on index funds, these are what I personallydon’t prefer because I trust a few active managers more than the index. However, that’s not to take away from the simplicity of investing in index funds, which people not wanting to choose active managers or direct stocks, must do.
In investing, the most important thing is to know what you don’t know. So if you don’t know how to pick stocks directly and how to pick the right active funds directly, it’s better to start with a passive, low-cost index fund.
Since there’s not much differentiation between different index funds, pick the one with the lowest cost and from a decent fund house.
As an allocator of capital for your personal and family wealth, what percentages do you generally have in equity / non-equity baskets (ignoring real estate investments)? The percentage allocations might be dynamic depending on market conditions, but what is the thought process behind the decision making when allocating capital to various asset classes?
A. Well, my allocation is not so much dependent on the market conditions as it is dependent on when I need the money.
Any money I need in the next 1-3 years, plus my emergency fund that is around 6-8 months of my household expenses, I don’t invest much of that in stocks.
However, of all the money I need beyond three years, I invest 80-90% of the same in equities, either directly in stocks or through equity funds.
Largely, I try to keep 80/20 allocation between equity and bonds, with the latter also including some gold.
If you were to go back to the start of your career as an investor, would you like to change something – add or delete?
A. Nothing to delete, but I will like to add a greater amount of patience. I have always been a long term investor, but I have lost a lot of wealth-creation opportunities by owning some great businesses for just 2-3 years which should’ve been owned for 15-20 years. So I have lost a lot of potential gains.
Another mistake I made, which I would like to correct if I were given a chance to go back in the past, is that I used to get anchored to stock prices. So I’ve sold a lot of stocks that earned me 100-200% returns just because they earned me 100-200% return, and because I was anchored to my buying price.
Your original cost price, as I realize now, does not matter when you are making a decision to hold or sell a stock, or buy more of the same. Then, once you have bought a great business – and there aren’t much of such businesses – it’s important to sit tight on it for years until the business itself does not change for the worse.
So yes, if I could, I just want to add more patience to my past investing decisions. How I wish that was possible. 🙂
What would you say to those who are just starting to learn about the markets and investing their own money?
First, read Safal Niveshak. 🙂
Jokes apart, here are my ten quick suggestions to a new, young investor –
1. Start…don’t wait
2. Read everything
3. Know that you don’t know…a lot
4. Keep it simple and minimalistic
5. Turn off the noise
6. Have patience
7. Focus on process, and outcome will take care of itself
8. Accept that you will make (a lot of) mistakes
9. Find your role models
10. Know what to avoid (like leverage, trading, and speculation)
Finally, while these ten suggestions/rules can help a new investor take better care of his/her money and financial life, I would also suggest him/her to not get too focused on these things that he/she loses out spending time on the real joys of life.
As a wise man, or maybe a woman, once said, “No matter how hard you hug your money, it never hugs back.”
For a young person who avoids investing in stock markets (due to risks & volatility), what examples will you share to convince him to start investing?
I don’t believe in convincing people, but inspiring them.
So, to such a person, I will try to inspire him/her by sharing my own experiences and the numerous stories of others who have created wealth for themselves using the power of compounding over long periods of time.
I will also gift him a few books like…
These books have inspired me a lot when it comes to taking proper care of my money, and I am sure these will inspire the person I gift them to, if he/she were read them diligently.
What’s your final, two-minute advice for an investor?
A. Nothing, as I’ve already advised a lot. 🙂
Just love your family more than the money. Be a good son/daughter, spouse, and parent.
Your best investment in life would not be any stock or bond or real estate or gold, but the time you spend with your child. Life can pull you in a thousand directions, and you might ignore it especially when your child is little. But remember – Children don’t stay little for long. So, slow down…take some time…give some time…invest some time.
And finally, please take care of your health. If you want to benefit from compounding, you need to be alive and in good health beyond 50 years of age.
If you have great health and a loving family, there’s no bigger wealth you can ask for in life.
Vishal Khandelwal has 11+ years experience as a stock market analyst and investor, and 3+ years as an investing coach. He is the founder of Safal Niveshak, a website dedicated to helping small investors become smart, independent, and successful in their stock market investing. Over the years, Vishal has trained 1,500+ individual investors in the art of investing sensibly in the stock market, through his Workshops and online investing courses.